Google fails to revolutionize the cellphone market

Google has announced that it will soon end direct online sales of its Nexus …

Google has announced that it will soon bring an end to its online sales of its Nexus One handset. The company will still show off Android phones on its site, but purchases will be done the old-fashioned way: through mobile service providers.

Google's direct sales model was an attempt to radically alter the business model for mobile handsets. Instead of buying a phone from a carrier, with a contract and a subsidized up-front cost, the company was hoping to cut out the network. Customers would buy the phone directly from Google, paying the full fee up-front, and then putting in a SIM of their choice.

This, however, ignored the realities of the phone market, as the company soon discovered. Its approach to tech support—send an e-mail and maybe get an answer eventually—was always doomed to failure. Given how important phones are to our lives and our lifestyles, that was never going to be acceptable. Customers might not like calling call centers, but if there's one thing worse than being stuck on hold waiting for the muzak to end, it's not being stuck on hold at all, because there isn't even anyone to call.

A month after launching the phone the company relented, giving its customers the ability to talk to someone. But this was not the only problem with its sales model.

As it wrote in the announcement, "it’s clear that many customers like a hands-on experience before buying a phone." A phone is something that people want to touch, to see how heavy it is, what it looks like in person, how good the screen is, if it fits nicely in their pocket—for many of us, the phone is an extension of ourselves, which is why we see so many different shapes and styles of handset on the market. So expecting people to be happy buying a handset that they cannot even touch, much less play around with, was a bridge too far.

There's also the small matter of expense. A one-off payment of $529 is hard to stomach. In many countries, we're not accustomed to paying so much for mobile phones, as normally their true cost is hidden—we pay less up front and commit to paying a monthly fee for 12-24 months. Only those brave souls who were willing to stump up for the early termination fee would get any idea of the true cost of their handset.

In a world of subsidized handsets, then, the Nexus one felt very expensive. It's true that SIM-only contracts are cheaper than with-handset ones, but the difference rarely feels significant enough to justify buying a full-price phone—much better to pay a little bit more each month and avoid the up-front cost. Even if you do the math and work out that the Google way is cheaper, there's still the unpleasant prospect of spending so much at once.

So, when looking to enter the European market, it's no surprise that the company sought to form partnerships with network operators and fall in line with every other major handset company, ensuring that the phones are available through the mobile operators' extensive retail stores, and that the initial pricing results in much less sticker shock. In the UK, for example, where Google has partnered with Vodafone, the Nexus One can be had for free on any call plan costing £35 or more per month.

Google is now attempting to build a similar retail presence in the US, and when it has done so it will end its online sales. It might not have an easy time accomplishing this, however. Its attempts to partner with Verizon and Sprint resulted in rejection by both networks, so the prospects for a CDMA version of the Nexus One seem very poor indeed.

Google's demands on branding and a refusal to allow the networks to cripple the handset, combined with the strong sales of the Motorola Droid and the buzz surrounding the new HTC Droid Incredible, are likely the cause for Verizon's decision. Similarly, with Sprint touting the new Android-powered HTC Evo 4G, there's little room for the older Nexus One.

This leaves the GSM providers as possible Nexus One promoters. As yet, there's no indication of who those might be; AT&T is obviously most interested in promoting the iPhone (and now iPad), so it might be unlikely to give the Nexus One much promotion. T-Mobile was the distributor of the original Google handset, the G1, so the company may find more joy there.

Google isn't the first to try this approach; Apple had originally hoped for a similar shift in business models. The first generation iPhone was, at $599, even more expensive than the Nexus One. After just two months on market, Apple cut the price by $200, offering a $100 credit to disgruntled early adopters. Subsequent models were introduced at prices much more in line with industry norms.

The subsidized business model is purportedly unpopular among the handset manufacturers; it dilutes their branding and diminishes the perceived value of their products. Customers don't realize that high-end phones actually cost hundreds of dollars, hence their surprise and outrage at ETFs. But with two high profile attempts to change the market—and two equally high profile failures to actually do so—it's clear that mobile operator partnerships and subsidized phones are here to stay.

113 Reader Comments

There's also the small matter of expense. A one-off payment of $529 is hard to stomach. In many countries, we're not accustomed to paying so much for mobile phones, as normally their true cost is hidden—we pay less up front and commit to paying a monthly fee for 12-24 months.

If only that were true, as our bill doesn't suddenly get lower once we've completed our contract term and are no longer "paying back" the device subsidy. That was probably the biggest impediment to Google's plan here, you may avoid a contract this way but you're still paying the same rate as everyone else who is getting a subsidized phone.

The article is right Apple tried a similar thing, retail price on phone, but they still had a 2-year contract lock-in. (some got around this early by failing the credit checks). I think if Apple had the current iPad plan structure back then, no contracts, etc. it may have had a better chance.

Well they could have duplicated the subsidized effect by customers paying for it over time like we do with cars and TV. As for the crippling an unlocked phone has always been the way. BTW whatever happen to Verizon's BYO?

Google gave up too quickly. The Nexus One is just as good as the iPhone if not better. Google's failure to promote the device across mass media led to its failure to sell, not the fact that it was only available online, or the high price. If you want to change the market, you have make people understand why the market should change.

ETF outrage is more to do with that the fees were not reduced linearly with the amount of time already in the contract, also that the cost of cell phone service is charged the same regardless of whether you get a phone subsidized or not.

There's also the small matter of expense. A one-off payment of $529 is hard to stomach. In many countries, we're not accustomed to paying so much for mobile phones, as normally their true cost is hidden—we pay less up front and commit to paying a monthly fee for 12-24 months.

If only that were true, as our bill doesn't suddenly get lower once we've completed our contract term and are no longer "paying back" the device subsidy. That was probably the biggest impediment to Google's plan here, you may avoid a contract this way but you're still paying the same rate as everyone else who is getting a subsidized phone.

This isn't quite accurate since, when you bought through Google, you got it with one of the cheaper monthly rate plans T-mobile offers in lieu of subsidized phones.

I have to admit I strongly considered it and may well have gone that route if I could have looked at the phone in person.

Is anyone else as sad, but not at all surprised, as I am that the Verizon deal fell through because Google refuses to cripple the phone? Its really a shame that this didn't work out. I know they were trying to change the game, but I guess reality just sucks. In this case, at least.

I think some of you guys are taking this to mean that the Nexus One is gone. All this means is that it's going to be actually sold at retail locations now, so that people can get their hands on one to see if they want it. Which is exactly what needed to happen.

Is anyone else as sad, but not at all surprised, as I am that the Verizon deal fell through because Google refuses to cripple the phone?

Would you care to elaborate on this point? Google doesn't make the Nexus One, HTC does. Google makes the operating system, Android. Both HTC and Android can be found on Verizon, and in some cases both together, as with the HTC Incredible. So what exactly is Google's objection to Verizon, and why does it only apply to the Nexus One? More to the point, how exactly is Verizon carrying the Nexus One "crippling" it?

Is anyone else as sad, but not at all surprised, as I am that the Verizon deal fell through because Google refuses to cripple the phone?

Would you care to elaborate on this point? Google doesn't make the Nexus One, HTC does. Google makes the operating system, Android. Both HTC and Android can be found on Verizon, and in some cases both together, as with the HTC Incredible. So what exactly is Google's objection to Verizon, and why does it only apply to the Nexus One? More to the point, how exactly is Verizon carrying the Nexus One "crippling" it?

Verizon carrying the Nexus One wouldn't be "crippling" it. Verizon crippling it, as they do with virtually all their other phones, would be Verizon "crippling" it. Charge to create a ringtone from your own music file, anyone?

Google is now attempting to build a similar retail presence in the US, and when it has done so it will end its online sales. It might not have an easy time accomplishing this, however. Its attempts to partner with Verizon and Sprint resulted in rejection by both networks, so the prospects for a CDMA version of the Nexus One seem very poor indeed.

Google's demands on branding and a refusal to allow the networks to cripple the handset, combined with the strong sales of the Motorola Droid and the buzz surrounding the new HTC Droid Incredible, are likely the cause for Verizon's decision.

And this is exactly why I find all the rumors about Apple releasing a iPhone on Verizon's network so hard to believe. Apple's not going to compromise about their phone's features any more than Google was willing to. And if Verizon wasn't willing to compromise with Google to try and capture some of the iPhone market, I don't think they're going to be willing to compromise with Apple either.

Is anyone else as sad, but not at all surprised, as I am that the Verizon deal fell through because Google refuses to cripple the phone?

Would you care to elaborate on this point? Google doesn't make the Nexus One, HTC does. Google makes the operating system, Android. Both HTC and Android can be found on Verizon, and in some cases both together, as with the HTC Incredible. So what exactly is Google's objection to Verizon, and why does it only apply to the Nexus One? More to the point, how exactly is Verizon carrying the Nexus One "crippling" it?

Verizon carrying the Nexus One wouldn't be "crippling" it. Verizon crippling it, as they do with virtually all their other phones, would be Verizon "crippling" it. Charge to create a ringtone from your own music file, anyone?

Who gets charged to use their own music files as ringtones? I know I don't. If you have a Droid and download the free Ringdroid app, you use your own MP3s and create your own ringtones, for free.

Is anyone else as sad, but not at all surprised, as I am that the Verizon deal fell through because Google refuses to cripple the phone?

Would you care to elaborate on this point? Google doesn't make the Nexus One, HTC does. Google makes the operating system, Android. Both HTC and Android can be found on Verizon, and in some cases both together, as with the HTC Incredible. So what exactly is Google's objection to Verizon, and why does it only apply to the Nexus One? More to the point, how exactly is Verizon carrying the Nexus One "crippling" it?

Verizon carrying the Nexus One wouldn't be "crippling" it. Verizon crippling it, as they do with virtually all their other phones, would be Verizon "crippling" it. Charge to create a ringtone from your own music file, anyone?

Quite. I wish I could elaborate further with specific functionality that Verizon wants to remove, but largely am simply quoting the article:

Quote:

Google's demands on branding and a refusal to allow the networks to cripple the handset...are likely the cause for Verizon's decision.

And this is exactly why I find all the rumors about Apple releasing a iPhone on Verizon's network so hard to believe. Apple's not going to compromise about their phone's features any more than Google was willing to. And if Verizon wasn't willing to compromise with Google to try and capture some of the iPhone market, I don't think they're going to be willing to compromise with Apple either.

The iPhone is perceived as less of a commodity, and has less of an "aura" to it than the Nexus One which, being an Android phone, was not unique on the Verizon network and competed with Verizon's own DROID branding.

Basically, it's bullshit like this that will keep me buying from Nokia. I have no interest in being told what I can buy, and having to buy it from the carrier. Maybe some day I'll get a discount for bringing my own phone, until then I'll suffer under the one-sided, overpriced service.

There's also the small matter of expense. A one-off payment of $529 is hard to stomach. In many countries, we're not accustomed to paying so much for mobile phones, as normally their true cost is hidden—we pay less up front and commit to paying a monthly fee for 12-24 months.

If only that were true, as our bill doesn't suddenly get lower once we've completed our contract term and are no longer "paying back" the device subsidy. That was probably the biggest impediment to Google's plan here, you may avoid a contract this way but you're still paying the same rate as everyone else who is getting a subsidized phone.

This isn't quite accurate since, when you bought through Google, you got it with one of the cheaper monthly rate plans T-mobile offers in lieu of subsidized phones.

I have to admit I strongly considered it and may well have gone that route if I could have looked at the phone in person.

Maybe not T-Mobile, but with everyone else the trade off for a subsidized phone is a contract, not a higher payment. If you own the phone, you are month to month without commitment on Verizon. Most people will get new phones and willingly submit to new contracts to do so. It's a we'll agree to keep doing business with you if you give us a nice phone. It works for me!

Is anyone else as sad, but not at all surprised, as I am that the Verizon deal fell through because Google refuses to cripple the phone?

Would you care to elaborate on this point? Google doesn't make the Nexus One, HTC does. Google makes the operating system, Android. Both HTC and Android can be found on Verizon, and in some cases both together, as with the HTC Incredible. So what exactly is Google's objection to Verizon, and why does it only apply to the Nexus One? More to the point, how exactly is Verizon carrying the Nexus One "crippling" it?

Verizon carrying the Nexus One wouldn't be "crippling" it. Verizon crippling it, as they do with virtually all their other phones, would be Verizon "crippling" it. Charge to create a ringtone from your own music file, anyone?

That's not true, do a quick search of "free ringtone maker" and you will find dozens of sites where you can do this for free and have it sent to your phone.

Is anyone else as sad, but not at all surprised, as I am that the Verizon deal fell through because Google refuses to cripple the phone?

Would you care to elaborate on this point? Google doesn't make the Nexus One, HTC does. Google makes the operating system, Android. Both HTC and Android can be found on Verizon, and in some cases both together, as with the HTC Incredible. So what exactly is Google's objection to Verizon, and why does it only apply to the Nexus One? More to the point, how exactly is Verizon carrying the Nexus One "crippling" it?

Verizon carrying the Nexus One wouldn't be "crippling" it. Verizon crippling it, as they do with virtually all their other phones, would be Verizon "crippling" it. Charge to create a ringtone from your own music file, anyone?

Your information about Verizon is out of date. On my Motorola Droid, simply go into the Music app, navigate to any mp3, long-press on the mp3 to get a popup menu, and choose "Use as phone ringtone". My Droid is using stock 2.1 Android.

Google's demands on branding and a refusal to allow the networks to cripple the handset...are likely the cause for Verizon's decision.

Probably not, really. The Moto Droid is not crippled in any way whatsoever; never has been. Verizon appears truly to have turned over a new leaf on this one. As for the branding, the front of my phone says Motorola; the back says Verizon - Google. Just like the TV ads for Droid and Droid Incredible - if you watch the end, you'll see it says Verizon - Google on top of the screen and the manufacturer at the bottom.

Google gave up too quickly. The Nexus One is just as good as the iPhone if not better.

The Android OS and the hardware is definitely better then the iPhone. The app market is not better, though, and that is the sort of thing that counts more.

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Google's failure to promote the device across mass media led to its failure to sell, not the fact that it was only available online, or the high price. If you want to change the market, you have make people understand why the market should change.

A person interested in the Nexus One has to find the advantages that the Nexus One offers _very_ desirable.

I mean, I would really like one I will NEVER EVER purchase a expensive phone that I can't hack. I have to be able to use the phone the way I want it and put on the firmware I want to get the features I want. The Nexus One offers that. It's very powerful and very flexible and very open.

A crippled carrier-branded phone is only marginally better then a dumbphone in my eyes.

But the stupid thing is still 600 bucks.

And since it's a phone and people drop them, lose them, sit on them, get them greasy, sweaty, dirty, etc etc... So it's not only costing more then even a average full sized computer, but it's probably going to get broken much faster.

600 bucks is a deal breaker. Most people only want a phone... a smart phone for 60-100 bucks is a wonderful thing since most people in the USA are going to enter into contracts anyways. It's a nice extra to splurg on. 600 bucks is just insanity in most people's eyes.

Once hardware as powerful as the Nexus one gets down to about 150-200 dollars _retail_ then Google needs to revisit the issue. They'll be a lot more successful.

From what I've heard, Verizon has gotten a lot better about letting phones on their network retain functionality. That is all just, "stuff I heard on the Internet," so take it as you will.

I currently have T-Mobile and the Plus plan, which offers a lower price with no phone subsidy options. I think we can purchase one unsubsidized phone for the amount we save each month over two years. I've had my eye on the N1, but it is tough to purchase a phone without seeing it (is it as big as the HD2, that thing is huge!). I also think it is in desperate need of a price drop. If they start selling the N1 at T-Mobile stores with a $50-$100 price drop, I'd be in there picking one up tomorrow.

There's also the small matter of expense. A one-off payment of $529 is hard to stomach. In many countries, we're not accustomed to paying so much for mobile phones, as normally their true cost is hidden—we pay less up front and commit to paying a monthly fee for 12-24 months.

If only that were true, as our bill doesn't suddenly get lower once we've completed our contract term and are no longer "paying back" the device subsidy. That was probably the biggest impediment to Google's plan here, you may avoid a contract this way but you're still paying the same rate as everyone else who is getting a subsidized phone.

Here in Australia, there are cheaper plans for prepaid phones. My current contract also has a monthly phone repayment, as I chose a cheap plan which couldn't swallow the whole cost of the phone. I haven't done that maths, but it would probably be cheaper to just buy the phone outright, over the long run. $1000AUD is a big jump for something that has essentially been considered 'free' until now though.

Apple also offers unlocked iPhones on its webpage. I wonder if Google just couldn't be bothered with the retail experience.

Honestly, it had nothing to do with retail availability or app markets or any of these bizarre explanations. At least for me, I just needed the damn thing on Verizon. As do most people in urban areas. Google put it off for so damn long that the Nexus One, had it ever arrived, would have been outdated by other hardware by the time I could buy it.

Maybe the delay was Verizon being douchebags, but Google had an eager customer in me. All I wanted was the chance to buy it, and it never materialized. I'm actually so disgusted with the whole debacle that I'm thinking of jumping ship to the iPhone, since it's arriving soon and Apple has enough clout with networks to not be slapped around.

Is anyone else as sad, but not at all surprised, as I am that the Verizon deal fell through because Google refuses to cripple the phone?

Would you care to elaborate on this point? Google doesn't make the Nexus One, HTC does. Google makes the operating system, Android. Both HTC and Android can be found on Verizon, and in some cases both together, as with the HTC Incredible. So what exactly is Google's objection to Verizon, and why does it only apply to the Nexus One? More to the point, how exactly is Verizon carrying the Nexus One "crippling" it?

Verizon carrying the Nexus One wouldn't be "crippling" it. Verizon crippling it, as they do with virtually all their other phones, would be Verizon "crippling" it. Charge to create a ringtone from your own music file, anyone?

Quite. I wish I could elaborate further with specific functionality that Verizon wants to remove, but largely am simply quoting the article:

Quote:

Google's demands on branding and a refusal to allow the networks to cripple the handset...are likely the cause for Verizon's decision.

As other commenters have already explained, your sources are out of date.

I've been with Verizon since 2004. I am all too familiar with their price gouging schemes. And they continue to this day. $3/month for visual voicemail. $15/month for GPS driving directions.

But, and this is a big but, they have not limited the Android marketplace on their phones. My HTC Incredible came with Google's driving directions app free. If I wanted, I could buy a visual voicemail app from the Android marketplace for $1, or download one of several free versions. Or hell, I could download Google Voice and just circumvent the whole thing.

The bottom line is that while Verizon is still trying to nickel and dime their customers with small fees, the functionality for which you pay is duplicated for free in plenty of apps on the marketplace. Claims of Verizon crippling Android phones are simply untrue.

yes, Google failed to sell directly to customers, that is true, and clearly Google never intended to replace carriers, also Google is very famous for trying out things out of the box even if many of them fail...but Google did revolutionize the cell phone industry as a whole with its ANDROID platform which has surpassed the iPhone sales for the last Q and will probably catch up to Blackberries very soon, not to mention the existence right now of a multitude of ANDROID phones, most of which leave any version of the iPhone in the dust in both hardware and software. the Droid for example has a better resolution which allows users to read books on it and to display FULL web pages, has Google maps not some whacko version of maps... is much faster than the iPhone and has many free Apps in its Market that iPhone users have to pay for, i dont know what you call this but its clearly revolutionary.

A "carrier independent" phone that can only go on one carrier in the U.S. has absolutely zero selling point. The Nexus One: you can buy it without a contract....but the version you'll get only works with T-Mobile.

Ok, now it's available for AT&T....but it's a different version of the phone! Those who bought the previous one are stuck with T-Mobile. But wait, that's not all! Even this new version will *only* work with AT&T.

So...you're getting all the disadvantages of a contract (can't use it with other carriers) without any of the benefits (able to switch carriers any time you want).

The hardware is not the limitation. Plenty of universal phones exist out there on the cheap that support all major 3G radios as well as modulation schemes. Hell, the Snapdragon inside already has a modem that supports all major 3G protocols.

I'm not all too familiar with how the process works for Verizon or Sprint, can one make a phone that follows their protocol (and clears FCC) and use it on their network without having to have them make it kosher?

This was simply the wrong tactic for Google to use *in the US*, especially considering it was only usable on one carrier unless you want to lose 3G. They eventually launched an AT&T version later, but it's not exactly a popular network.

If this was actually marketed properly to European customers in a similar way, it would've had more success. A single phone which can work on nearly all networks. However they decided to sell it from the US with international shipping, leaving people with additional charges for importing it. In the UK there are certainly more people willing to buy the phone upfront so they aren't tied into a contract, leaving the Nexus One to imports only for 4 months isn't going to make your product a hot seller.

There's always going to be a market for both contract phones and selling the phone upfront, target both well to ensure you get decent sales figures - going for either one half heartedly is a recipe for failure.

Google made the right call here. That's just not how people buy phones. But even though it lost the battle, it probably won the war, since now Android has a flagship phone. Nobody on Verizon should be sad about no N1 when you have the Incredible, Sense UI notwithstanding.

JaySmuv wrote:

From what I've heard, Verizon has gotten a lot better about letting phones on their network retain functionality. That is all just, "stuff I heard on the Internet," so take it as you will.

No, this is true. I doubt Verizon was happy about it, but that is indeed how it is now. Motorola Droids are running stock Android OS and the Incredible appears to just be running Android + Sense UI. My Palm Pre Plus doesn't seem to have any Verizon-imposed limitations, either.

can you even activate these things without data plans? everywhere i've looked you can certainly buy the phone outright, but you still have to pay for the data plan even if you don't want it (ie just use it for a phone/media player without the 30$ month fee).

got stuck with that by sprint for my wife's blackberry. got it from ebay but sprint mandated we pay another 20 or something a month for data that she does not use at all.

fact of the matter is cellphones are a fucking ripoff. to bad there's no real competition in that realm either. just like broadband. bleh. what a country we live in.

The primary issue with Google's plan was the cost of the phone. It needed to be sold cheaper than $529. Various trade mags said the rough cost to build of $174. Yes..there are manufacturing costs, etc but they would have gotten more immediate market penetration (which was a must!) with a cheaper price. I bought my current Nokia e72, unlocked, 3G ready for $279. I have purchased my last two phones the same way.

The comment above about AT&T not being a popular carrier is patently false...and that is another area Google needed to address. The AT&T version needed to ship first or at the same time. Their main competitor was the iphone and that has sold like hotcakes. AT&T added the most subscribers Q4 of last year...2.7 million to bring it to 85.1 million. Google could have eaten into the iphone sales by releasing the RIGHT phone in November before the full brunt of the holiday buying season.

Instead of bringing out a phone for AT&T or Verizon...they brought it out first for T-Mobile. (Resounding thud) Now T-Mobile may have a decent network but it is hardly as large as the aforementioned providers.

Not having a retail interface is a bunch of bunk as well. I do most of my purchases online and what matters most is customer service after the sale. With Google it was non-existent. Email and message boards don't work for cell phone customers.

I bought a Nexus One (love it, by the way), but I didn't honestly think that they were sincerely trying to "change the way phones are sold." It struck me that Google was trying to establish a sort of standard or baseline for high-end Android phones (which I'd argue, at least, that they did). It had appeared to me that they were making good on their promise not to compete against their partners...

After other abysmal failures recently, however (see: Buzz, see: Wave, see... ), I don't give them the same benefit of the doubt. It seems their marketing strategy really is to "just throw things at the wall and see what sticks."